EXCHANGE AGREEMENT
AGREEMENT, dated as of March 31, 1999, among (i) Xxx X. Xxxxxxx, an
individual resident of the State of Alabama ("Xxxxxxx"), Xxxxxxx Deep, an
individual resident of the State of Alabama ("Deep"), Xxxxxxx Xxxxxxx, an
individual resident of the State of Tennessee ("Xxxxxxx"), and Xxxxxxx Xxxx, an
individual resident of the State of Tennessee ("Xxxx"), and Xxxxx Xxxxx, an
individual resident of the State of Alabama ("Lenox") (each a "Shareholder,"
and, collectively, "Shareholders") and Spectrum Information Services, Inc. an
Alabama corporation, located at 000 Xxxxxx Xxxxx, Xxxxxxx, XX 00000 (the
"Company"), and (ii) IBS Interactive, Inc., a Delaware Corporation, located at 0
Xxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxx, XX 00000 ("IBS").
WHEREAS, the Company, was organized under the laws of the State of
Alabama pursuant to a articles of incorporation filed on January 9, 1997; and,
WHEREAS, Xxxxxxx, Deep, Xxxxxxx, Xxxx and Lenox are the owners of all
of the issued and outstanding common stock of the Company (the "Capital Stock");
and,
WHEREAS, the Capital Stock is voting common stock; and
WHEREAS, the Shareholders, the Company and IBS desire to combine the
business of the Company with the business of IBS pursuant to a tax free
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code"); and,
WHEREAS, to accomplish such combination, the Shareholders desire to
exchange their respective shares of Capital Stock with IBS in return for shares
of voting capital stock of IBS;
NOW, THEREFOR, the parties hereto, intending to be legally bound,
hereby and in consideration of the mutual covenants contained herein, agree as
follows:
1. Exchange of Capital Stock; Exchange Price.
A. Subject to the terms and conditions of this Agreement, on the
Closing Date (as defined in Section 3), Shareholders shall
assign to, transfer to and exchange with IBS, all of the
Capital Stock owned, respectively, by each Shareholder, and
all of each such respective Shareholder's right, title and
interest of the Capital Stock and in and to the Company, and
IBS shall exchange and accept from the Shareholders all of the
issued and outstanding Capital Stock of the Company in
exchange for Capital Stock of IBS.
B. The aggregate exchange Price for all of the issued and
outstanding Capital Stock shall be $3,200,000.00 (the
"Exchange Price") (subject to adjustment as set forth in
Section 1.C and 1.D) payable in 145,456 shares of IBS voting
common stock, par value $.01 per share (the "IBS Stock"), at a
Price per share of Twenty-Two Dollars ($22.00) (the "Share
Price").
C. At the Closing (as defined in Section 3) 7.5% of the Exchange
Price, $240,000.00 payable in shares of IBS Stock (the "First
Reserved Shares") (10,909 shares) will be held in reserve by
Continental Stock Transfer & Trust Company (the "Reserve
Agent"). No later than the last business day prior to the one
(1) year anniversary of the Closing Date (as defined in
Section 3) (the "Reconciliation Date"), IBS and the
Shareholders' Attorney-in-Fact (as defined in Section 17.L)
shall determine the dollar value of "Liabilities," if any, to
be deducted from the First Reserve Amount. For purposes of
this Agreement, "Liabilities" shall include any and all
claims, losses, damages, expenses or liabilities, including,
without limitation, reasonable attorneys', accountants' and
other professional fees, (collectively, the "Liabilities"),
which have been asserted against, sustained, suffered or
incurred by IBS, or IBS' respective officers, directors,
shareholders and/or legal representatives, arising from or by
reason of or in connection with: (i) any breach of the
respective representations, warranties and covenants made by
each of Shareholders and/or the Company herein, (ii) the
operation of the Company on or before the Closing Date, and
(iii) any taxes due and payable by the Company with respect to
any taxable year or portion thereof ending on or before the
Closing Date to the extent such taxes are not reflected in the
reserve for taxes (if any) shown on the Balance Sheet (as
defined in Section 4.H.(ii)), but in all cases Liabilities
shall not include: (a) obligations and Liabilities reserved
against on the Balance Sheet, (b) obligations and liabilities
incurred in the ordinary course of business since the date of
the Balance Sheet, (c) the obligations and Liabilities of the
Company for future performance under any contracts, agreements
and instruments to which the Company is a party, which
contracts, agreements and instruments are listed in the
Disclosure Letter, (d) any Liabilities incurred in connection
with, arising from or related to the operation of the business
of the Company after the Closing Date or (e) taxes incurred as
a result of actions taken by, or on behalf of, IBS or the
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Company after the Closing Date. The number of First Reserved
Shares, in the aggregate, to be delivered by the Reserve Agent
to the Shareholders, if any, shall be determined by dividing
that portion of the First Reserved Amount which remains, if
any, after such Liabilities are deducted by the Share Price,
and IBS shall deliver such First Reserved Shares, if any, to
the Shareholders, within one (1) week following the
Reconciliation Date. IBS and the Shareholders agree that until
the Reconciliation Date (and for so long
thereafter until the number of shares to be distributed to the
Shareholders is determined), the Shareholders shall
be entitled to exercise their rights to vote the shares held
in the First Reserved Amount and shall be entitled to
receive any dividends or other distributions made with respect
to the shares held in the First Reserved Amount.
D. At the Closing (as defined in Section 3) an additional
$700,000.00 of the Exchange Price (21.875%), payable in shares
of IBS Stock (the "Second Reserved Shares") (31,818 shares)
will be held in reserve by the Reserve Agent. In the event
that the Company enters into its proposed $2,200,000 contract
with, or receives a purchase order from, Xxxxxx County to
provide it with $1,560,000 in materials (which cost of
materials excludes costs of labor and overhead), then, on the
date that such contract is executed by all of the parties
thereto, and provided that such date is prior to the
Reconciliation Date, IBS and Shareholder's Attorney-in-Fact
will instruct the Reserve Agent to deliver all of the Second
Reserved Shares to Shareholders. In the event that Company
does not enter into its proposed $2,200,000 contract with
Xxxxxx County prior to the Reconciliation Date, then, no later
than the Reconciliation Date, IBS and the Shareholders'
Attorney-in-Fact (as defined in Section 17.L) shall (i)
determine the dollar value of "Replacement Income" for the
year preceding the Reconciliation Date. For purposes of this
Agreement, Replacement Income shall be the actual total dollar
value of the contracts and purchase orders received from
prospects listed on the Disclosure Letter hereto, which list
shall be added immediately following the Closing, entered into
or received by Company in the year preceding the
Reconciliation Date minus the total actual dollar value of all
material (which costs of material do not include labor and
overhead costs) related to such contracts. Upon determination
of Replacement Income, IBS and
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Shareholders' Attorney-in-Fact shall instruct the Reserve
Agent to deliver to Shareholders such amount of Second
Reserved Shares equal to the Replacement Income divided by the
Share Price and the Reserve Agent shall deliver such First
Reserved Shares, if any, to the Shareholders, within one (1)
week following the Reconciliation Date. The maximum amount of
Exchange Price adjustment or any other liability to be
incurred by Shareholders in connection with the Xxxxxx County
contract shall be limited to the Second Reserve Shares. IBS
shall, following the Closing, use its reasonable best efforts
to obtain the aforesaid contract or purchase order from Xxxxxx
County. IBS and the Shareholders agree that until the
Reconciliation Date, (and for so long thereafter until the
number of shares to be distributed to the Shareholders is
determined) the Shareholders shall be entitled to exercise
their rights to vote the shares held in the Second Reserved
Amount and shall be entitled to receive any dividends or other
distributions made with respect to the shares held in the
Second Reserved Amount.
E. The Exchange Price, less the First Reserved Amount and the
Second Reserved Amount ($2,260,000) (the "Adjusted Exchange
Price"), payable in 102,738 shares of IBS Stock (the "Closing
Shares"), shall be delivered to the Shareholders at the
Closing (as defined in Section 3).
2. Transfer of Shares. Each of the Shareholders agrees that each and every
exchange, transfer, assignment and/or encumbrance of any of the Closing
Shares or the Reserved Shares (the Closing Shares and the Reserved
Shares are collectively referred to herein as the "Shares"),
respectively, will comply in all respects with the provisions of Rule
144 of the Securities Act of 1933, as amended.
3. Closing. The closing of the exchange of the Capital Stock of the
Company and the IBS Capital Stock and the other matters contemplated by
this Agreement (the "Closing") shall take place at 10:00 a.m. on March
31, 1999, at the offices of the Xxxxxxx Xxxxx Xxxx & White LLP, or at
such other time and place as mutually agreed upon by the parties, time
being of the essence, (the "Closing Date").
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4. Representations and Warranties of Shareholders. Each Shareholder (other
than Lenox), severally and jointly, hereby represents and warrants to
IBS as follows, and acknowledges that, except with regard to matters
set forth on the Disclosure Letter, IBS is relying upon such
representations and warranties, respectively, in connection with the
exchange by IBS of the IBS Stock for the Capital Stock of the Company:
A. Legal Capacity; No Restrictions. Each of the Shareholders has
full legal capacity, power and authority to execute and
deliver this Agreement and to perform their respective
obligations hereunder. All acts required to be taken by the
Shareholders to enter into this Agreement and to carry out the
transactions contemplated hereby have been properly taken; and
this Agreement, assuming the due execution and delivery of
this Agreement by IBS, constitutes a legal, valid and binding
obligation of each of the Shareholders, enforceable in
accordance with its terms except to the extent that
enforceability may be limited by bankruptcy laws and other
laws of general application relating to creditor's rights,
general principles of equity or principles of public policy.
The execution, delivery and performance of this Agreement by
each of the Shareholders in accordance with its terms will
not, with or without the giving of notice or the passage of
time, or both, conflict with, result in a default, right to
accelerate or loss of any rights under, or result in the
creation of any Encumbrance (as defined in Section 4.B)
pursuant to, or require the consent of any third party or
governmental authority pursuant to (a) any provision of the
articles of incorporation, as now in effect, or bylaws, as now
in effect, of the Company, or (b) any franchise, mortgage,
indenture or deed of trust or any material lease, license or
other agreement or any law, regulation, order, judgment or
decree to which any of the Shareholders or the Company is a
party or by which any of them (or any of their assets,
properties, operations or businesses) may be bound, subject to
or affected, which would have a material adverse effect on the
Company.
B. Ownership. The Shareholders own all of the issued and
outstanding Capital Stock of the Company. Set forth in the
Disclosure Letter is the name and address of, and number,
class and percentage interest of Capital Stock owned by, each
of the Shareholders. Each Shareholder is the sole registered
holder and beneficial owner of his Capital Stock, free and
clear of any and all Encumbrances (the term "Encumbrances" as
used herein shall mean a mortgage, lien, encumbrance, security
interest, restriction, pledge, options, calls, assessments,
adverse claims or rights with respect to the property
involved). Each Shareholder has all legal right, title and
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authority to transfer the Capital Stock to IBS as contemplated
hereby. The assignment, transfer and exchange of the Capital
Stock to IBS in accordance with Section 1 hereof will vest in
IBS full right, title and interest in and to all of the
Capital Stock of the Company, free and clear of any and all
Encumbrances.
C. Shareholders' Interest in Similar Businesses. Except as set
forth in the Disclosure Letter to this Agreement, no
Shareholder has any financial interest in any person, firm or
entity (other than the Company) which is, or since the Balance
Sheet Date was, directly or indirectly, engaged in any
business engaged in by the Company, or which is a party to any
material agreement to which the Company is also a party.
Notwithstanding the foregoing, Shareholder shall not be in
violation of this Section 4.C solely by owning or investing in
less than 1% of the securities of any publicly traded company.
D. Ownership Interests. The authorized Capital Stock of the
Company consists of 500 shares of common stock, par value
$1.00 per share. The issued and outstanding Capital Stock of
the Company and the respective holders thereof are as set
forth in the Disclosure Letter. All issued Capital Stock of
the Company is duly authorized, validly issued and fully paid
and non-assessable. No options, warrants or other rights for
the purchase of any of the Capital Stock of the Company or any
security convertible into such Capital Stock are authorized
and outstanding. There are no voting trusts or other
contractual commitments or understandings with respect to the
ownership, transfer and/or voting of the Capital Stock. There
are no contracts, commitments or understandings to issue any
additional Capital Stock and there are no securities or rights
of any kind outstanding which are convertible into or
exchangeable for any Capital Stock or other equity interests
in the Company. The execution and delivery by Shareholders of
this Agreement and the performance by Shareholders of the
transactions contemplated hereby to be performed by it have
been duly authorized by all necessary corporate and
stockholder actions on the part of Shareholders and Company.
E. Subsidiary; Investments in Others. The Company has no
subsidiaries and does not: (i) own, directly or indirectly,
any capital stock or membership interests of another
corporation; or (ii) except as set forth in the Disclosure
Letter, have any equity interest, directly or indirectly, in
any unincorporated association, partnership, joint venture or
other entity, nor has the Company made any commitment to
purchase any capital stock of, or otherwise made any
investment in, any other corporation, unincorporated
association, partnership, joint venture or other entity.
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F. Company Existence and Power. The Company is a corporation duly
organized and validly existing and in good standing under the
laws of the State of Alabama, and, except as set forth in the
Disclosure Letter, the Company is qualified to do business and
is in good standing in all other states in which the Company
is required to qualify to do business. The Company has the
power to own, lease or operate its properties and to carry on
its business as now being conducted. The Shareholders have
furnished to IBS true and complete copies as the same are
currently in effect of (i) the articles of incorporation of
the Company and all amendments thereto, certified by the
Secretary of State or other appropriate governmental official
of its jurisdiction of incorporation certified as true and
correct by each of the Shareholders, and (ii) the bylaws, as
currently amended and in effect, of the Company, certified as
true and correct by the secretary of the Company. The Company
has the requisite corporate power to execute and deliver this
Agreement and perform the transactions contemplated hereby to
be performed by it. The execution and delivery by Company of
this Agreement and the performance by Company of the
transactions contemplated hereby to be performed by it have
been duly authorized by all necessary corporate and
stockholder actions on the part of Company. This Agreement has
been duly executed and delivered by a duly authorized officer
of Company and, assuming the due execution and delivery of
this Agreement by IBS, constitutes a valid and binding
obligation of Company enforceable against the Company in
accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy laws and other
laws of general application relating to creditor's rights,
general principles of equity or principles of public policy.
The execution and delivery of this Agreement by the Company
does not, and the performance by the Company of the
transactions contemplated hereby to performed by it will not
(i) conflict with the articles of incorporation or by laws of
the Company, (ii) conflict with, or result in any violation
of, or constitute a default (with or without notice or lapse
of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
to loss of a benefit under, any material contract, permit,
order, judgment or decree to which Company is a party or to
which it is bound, which would have a material adverse effect
on the Company, (iii) constitute a violation of any law or
regulation applicable to Company, which would have a material
adverse effect on the Company, or (iv) result in the creation
of any lien, charge or encumbrance upon any of the assets of
the Company.
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G. Records. Except as set forth in the Disclosure Letter, the
minute books and shareholders list, including any transfers of
Capital Stock, of the Company, previously delivered by
Shareholders to IBS or their representatives, are complete and
correct in all material respects, and there have been no
material transactions involving the Company which would be
required to have been set forth therein and which have not
been so set forth.
H. Financial Statements. The Shareholders have delivered to IBS
the following financial statements, including notes, comments,
schedules (except for prepaid insurance and fixed assets), and
supplemental data therein (collectively called the "Financial
Statements"), all of which have been prepared from the books
and records of the Company in accordance with accounting
principles consistently applied and maintained throughout the
periods indicated, and fairly present the financial condition
of the Company in all material respects as at their respective
dates and the results of the operations of the Company for the
periods covered thereby:
(i) unaudited balance sheets of the Company at December
31, 1998 and statements of income for the year then
ended, all compiled by the Company's certified public
accountants.
(ii) unaudited balance sheet of the Company ("Balance
Sheet") as at February 28, 1999 ("Balance Sheet
Date"), and unaudited statements of income and
balance sheet for the two (2) months then ended
("Interim Financial Statements").
(iii) the Interim Financial Statements reflect all
outstanding indebtedness for borrowed money, as of
the date hereof, pursuant to loan agreements,
indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements,
equipment obligations, guaranties and lease purchase
agreements to which the Company is a party or by
which any of its properties is bound.
(iv) without limiting the generality of the foregoing
provisions of this Section 4.H, to the best knowledge
of Shareholders, the Financial Statements have been
prepared in all material respects on the following
bases:
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(a) All fixed assets and equipment have been
valued at actual cost less accumulated
depreciation, and no asset has, directly or
indirectly, been written up.
(b) The statements of income do not contain any
items of special or nonrecurring income or
any other income not earned in the ordinary
course of business, except as expressly
specified therein.
(c) Pension, benefit and welfare plan payments
and severance pay have been accrued for each
employee of the Company as of the Balance
Sheet Date, on the basis of benefits
customarily granted. Vacation and sick pay
have not been accrued as of the Balance
Sheet Date. The Company's aggregate
liability for vacation and sick pay as of
the Balance Sheet Date does not exceed
$35,000.00. Bonuses are not accrued by the
Company until year-end. All bonuses are
discretionary and no employee of the Company
has any contractual rights to a bonus for
any period during the fiscal year ending
December 31, 1998.
(d) Transactions between the Company and any
affiliate thereof are reflected therein.
(e) Except as set forth in the Disclosure
Letter, the accounts receivable of the
Company included in the Balance Sheet (less
applicable reserves) are collectible, have
been collected or are expected to be
collected in full over the period of usual
trade terms (by use of the Company's normal
collection methods) in all material
respects, and, to the best knowledge of
Shareholder, there do not exist any
defenses, counterclaims and set-offs which
would materially adversely affect such net
receivables, and all such receivables are
actual and bona fide receivables
representing the total dollar amount thereof
shown on the books of the Company.
(f) To the best knowledge of Shareholders, the
Company has no material liabilities, whether
absolute, accrued, contingent or otherwise,
except (A) as and to the extent reflected or
9
reserved against on the Balance Sheet, and
(B) those incurred in the ordinary course of
business and consistent with prior
practices, since the Balance Sheet Date or
otherwise disclosed in the Disclosure
Letter, (C) obligations and liabilities of
the Company for future performance under
contracts, agreements and instruments to
which the Company is a party, which
contracts, agreements and instruments are
listed in the Disclosure Letter and (D) such
liabilities which were not required to have
been disclosed on the Balance Sheet, as of
said date, in accordance with generally
accepted accounting principles. To each of
Shareholder's respective best knowledge,
there are no facts or circumstances existing
on the date hereof which could be reasonably
likely to result in the occurrence of any
such liability.
I. Taxes, Tax Returns. All federal, state, local and foreign
income, excise, property, sales and other taxes, assessments,
governmental charges, penalties, interest and fines due and
payable by the Company, and, to the best knowledge of
Shareholders, by any other person, firm or corporation which
will or may be material liabilities of the Company, for all
periods ending on or before the Balance Sheet Date, have been
paid in full, or have been fully reserved against on the
Balance Sheet. The Company has filed all federal, state, local
and foreign income, excise, property, sales, withholding,
social security, information returns and other tax returns,
reports and related information ("Returns") due and required
to have been filed by it prior to the date hereof , and no
extensions of the time for filing a Return is presently in
effect. The Returns that have been filed have been, in all
material respects, accurately prepared and have been duly and
timely filed. The Company is not and has never been a member
of any affiliated group filing a consolidated tax return. The
Company has not received notice that any of the Company's
Returns have been examined by any governmental or other
authority exercising any taxing or tax regulatory authority
for any fiscal years or periods since it came into business.
There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing
of any Return, or payment of any tax, governmental charge,
assessment, deficiency, penalties, fines or interest by the
Company. There is no action, suit or proceeding pending, or,
to the best knowledge of Shareholders, investigation or claim
now threatened against the Company in respect of taxes,
governmental charges or assessments, or any matter under
discussion with any governmental or other taxing authority
relating to taxes, governmental charges or assessments
asserted by any such authority.
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J. Absence of Certain Changes or Events. Except as set forth in
the Disclosure Letter, since the Balance Sheet Date, the
Company has not:
(i) issued, delivered or agreed to issue or deliver any
Capital Stock, bonds or other Company securities, or
granted or agreed to grant any options (including
employee stock options), warrants or other rights for
the issue thereto except as contemplated herein;
(ii) borrowed or agreed to borrow any funds except
indebtedness due to First Commercial Bank, not in
excess of the amount thereof shown on the Balance
Sheet;
(iii) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to
become due, except current liabilities for trade
obligations due to third parties and other
liabilities and obligations incurred in the ordinary
course of business and consistent with prior
practice;
(iv) discharged or satisfied any Encumbrance outside the
ordinary course of business other than those then
required to be discharged or satisfied, or paid any
obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become
due, other than current liabilities shown on the
Balance Sheet and current liabilities incurred since
the Balance Sheet Date in the ordinary course of
business and consistent with prior practice;
(v) sold, transferred, leased to others or otherwise
disposed of any assets, except for inventories,
supplies or other assets sold for fair consideration
in the ordinary course of business and assets no
longer used or useful in the conduct of its business,
or canceled or compromised any debt or claim, or
waived or released any right of substantial value
other than non-material debts and claims in the
ordinary course of business;
(vi) except as set forth in the Disclosure Letter and
except for expiration or termination in accordance
with the terms of any contract, lease or agreement,
received any notice of termination of any contract,
lease or other agreement, or suffered any damage,
11
destruction or casualty loss (whether or not covered
by insurance) which, in any case or in the aggregate,
has had a material adverse effect on its condition
(financial or otherwise), properties, assets,
liabilities, operations or prospects;
(vii) reduced its inventories or supplies materially below
normal levels for the continuation of business in the
usual course;
(viii) encountered any labor union organizing activity, had
any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts, or any other labor
trouble other than routine grievance matters none of
which is material, or had any material adverse change
in its relations with its employees, agents,
customers or suppliers;
(ix) transferred or granted any rights under, or entered
into any settlement regarding the breach or
infringement of, any license, patent, copyright,
trademark, trade name, invention or similar rights,
or modified any existing rights with respect thereto,
except in the ordinary course of business;
(x) except as set forth in the Disclosure Letter and
except with regard to a tax distribution to pay the
tax liability associated with the income of the
Company since January 1, 1999, made any accrual or
arrangement for any bonus, or any severance or
termination pay to (a) any present or former officer
or employee who is or was receiving compensation at
an annual rate in excess of $10,000; or (b) any
person, firm or corporation which is or was
furnishing professional or consulting services to the
Company;
(xi) increased the rate of compensation payable or to
become payable by it to any of its directors,
officers or employees who is or was receiving
compensation at an annual rate in excess of $10,000;
entered into an employment agreement or amended any
employment agreement for any such person; or made any
material increase in any insurance, pension or other
employee benefit plan, payment or arrangement made
to, for or with any such director, officer or
employees;
(xii) except as set forth in the Disclosure Letter,
declared or made, or agreed to declare or make, any
payment of distributions of any assets of any kind
12
whatsoever to any Shareholder or any affiliate of any
Shareholder, or purchased or redeemed, or agreed to
purchase or redeem, any of its Capital Stock, or made
or agreed to make any payment to any Shareholder or
any affiliate of any Shareholder, whether on account
or with respect to long-term debt, management fees or
otherwise except in the ordinary course of business,
such as normal payroll payments;
(xiii) to the best knowledge of Shareholder, suffered any
other material adverse change, event or condition
outside the ordinary course of business which, in any
case or in the aggregate, has had a material adverse
effect on its condition (financial or otherwise),
properties, assets, liabilities, operations, business
or prospects; or,
(xiv) entered into any agreement or made any commitment to
take any of the types of action described in any of
the foregoing clauses; provided, however, any
commitments made by or at the direction of IBS shall
not constitute a breach of the representations and
warranties of Shareholder.
K. Title to Property. The Company does not own any real property.
Set forth in the Disclosure Letter is a list of each lease,
sublease, license or any other instrument under which the
Company claims or holds such leasehold or other interest or
right to the use thereof or pursuant to which the Company has
assigned, sublet or granted any rights therein, true and
correct copies of which have been provided to IBS. Except as
set forth in the Disclosure Letter, the Company has good and
valid title to all its properties and assets, including,
without limitation, those reflected in its books and records
and in the Balance Sheet except (a) inventory, supplies and
other assets sold for fair consideration or consumed after the
Balance Sheet Date in the ordinary course of business, and (b)
assets no longer used or useful in the conduct of its
business. None of the properties and assets of the Company are
subject to any Encumbrance or adverse claim of any nature
whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise, except for (i) those which are set
forth in the Balance Sheet as securing specific liabilities,
(ii) leases, licenses and other agreements set forth in the
Disclosure Letter, or (iii) as set forth in the Disclosure
Letter. All the properties and assets owned, leased or used by
the Company are in good operating condition and repair
(ordinary wear and tear excepted), are, in the judgment of
Shareholders, suitable for the purposes used, and are, in the
judgment of Shareholders, adequate and sufficient for the
Company's operations, as the Company is currently being
13
operated, and meet, in all material respects, all applicable
material laws, rules and regulations relating to such
property. All leases are in full force and effect and true and
complete copies of all leases have been delivered to IBS or
their representatives.
L. Permits and Licenses; Compliance with Law. All licenses,
permits, authorizations, variances, exemptions, orders and
approvals from federal, state, local and foreign governmental
and regulatory bodies held or required to be held by the
Company in connection with its ownership and lease of real and
personal property and the operation of its business have been
obtained, other than those Permits which would not have a
material adverse effect on the Company. The Company is in
compliance in all material respects with the terms of such
Permits held by it or applicable to it and with all material
requirements, standards and procedures of the federal, state,
local and foreign governmental or regulatory bodies which
issued them. Except as set forth in the Disclosure Letter, the
Company is in compliance in all material respects with all
material, federal, state, local and foreign laws, ordinances,
codes, regulations, orders, requirements and standards of
procedures which are applicable in any material respect to its
business. The Disclosure Letter includes, to the extent that
any of the following exists: (i) a list of each such adjudged
violation; and (ii) a list of each asserted violation, notice
of inspection, inspection report or any other written report
(excluding Returns) delivered by any governmental or
regulatory agency to the Company or delivered by the Company
to any governmental or regulatory agency relating to
enforcement of or compliance with any of such laws,
ordinances, codes, regulations, orders, requirements,
standards and procedures material to the Company. Except as
set forth in the Disclosure Letter, (i) the Company has
complied in all material respects with all existing material
federal, state and local laws, rules, regulations, ordinances,
orders, judgments and decrees now or hereafter applicable to
its business, properties or operations as presently conducted,
other than those which would not have a material adverse
effect on the Company, and neither the ownership nor use of
the Company's properties nor the conduct of its business
conflicts, illegally or in violation of any agreement, with
the rights of any other person, firm or corporation or
violates, or with or without the giving of notice or the
passage of time, or both, will violate, conflict with or
result in a default, right to accelerate or loss of rights
under, any term or provision of (a) the articles of
incorporation or bylaws of the Company, as presently in
effect, or (b) any mortgage, indenture, deed of trust or
material encumbrances, lease, license or agreement or any
material law, ordinance, rule, regulation, order, judgment or
decree to which the Company is a party or by which it or any
of its properties, assets or operations may be bound and which
14
might materially adversely affect any such properties, assets
or operations; and (ii) each of Shareholders, respectively,
does not know of any material proposed laws, rules,
regulations, ordinances, orders, judgments, decrees,
governmental takings, condemnations or other proceedings which
would be applicable to the business, operations or properties
of the Company and which might materially adversely affect its
properties, assets, operations or prospects, either before or
after the Closing Date. Without limiting the generality of the
foregoing, to the best knowledge and belief of each of
Shareholders, neither Shareholders, the Company nor any
manager, employee or agent of the Company has, directly or
indirectly, made, promised to make, or authorized the making
of, an offer, payment or gift of money or anything of value to
any government official, political party or employee, agent or
fiduciary of a customer, to obtain a contract for or to
influence a decision in favor of the Company where such offer,
payment or gift was or would be, if made, in violation of any
applicable law, nor have they maintained cash or anything of
value, in an account or otherwise, not properly and accurately
accounted for on the books and records of the Company for this
purpose.
M. Contracts with Customers and Others. Except as set forth in
the Disclosure Letter and except for contracts with customers
which have expired or terminated in accordance with the terms
of any applicable agreement, none of the customers or other
persons which are parties to any agreements to which the
Company is a party has notified the Company of any intention
to terminate its contract or arrangement for service, as a
result of the transactions consummated hereby.
N. Product Warranties and Guarantees. Except with respect to
forms of product and service warranties or guarantees of any
nature set forth in the Disclosure Letter or otherwise
provided by the Company in the ordinary course of business,
and except for obligations of the Company pursuant to any
agreements to which the Company is or was a party and jobs
performed by the Company in the ordinary course of business,
the Company is not a party to or bound by any agreement of
guarantee, indemnification, assumption or endorsement or any
other like commitment of the obligations, liabilities
(contingent or otherwise) or indebtedness of any other person,
firm or corporation.
O. Material Agreements; Validity; No Default. The Disclosure
Letter sets forth a list of (i) all acquisition agreements
under which the Company will acquire the business or a
15
substantial portion of the assets of any other person, firm or
entity pursuant to which the Company has any continuing
obligation, and any claims by parties other than the Company
with respect thereto; (ii) all contracts, agreements,
commitments, purchase orders or other understandings or
arrangements to which the Company is a party relating to the
sale or furnishing by it of goods or services where the
consideration for such sale is $10,000.00 or more, in any
single case, any claims by parties other than the Company with
respect thereto, and the forms of any express product
guarantees or warranties made by the Company relating to its
goods or services; (iii) all contracts, agreements,
commitments, purchase orders or other understandings or
arrangements to which the Company is a party relating to the
purchase by it of goods or services where the consideration
for such purchase is $10,000.00 or more, in any single case,
and any claims by the Company with respect thereto; and (iv)
all contracts, agreements and commitments not yet fully
performed, pursuant to which the Company will acquire the
business or any substantial portion of the assets of any other
person, firm or corporation. All the contracts, agreements,
leases, licenses and commitments required to be listed in the
Disclosure Letter are valid and binding, enforceable in
accordance with their respective terms, except to the extent
that enforceability may be limited by bankruptcy laws and
other laws of general application relating to creditor's
rights, general principles of equity or principles of public
policy, and are in full force and effect, to the extent
enforceable against the Company. Except as set forth in the
Disclosure Letter, there is not under any such contract,
agreement, lease, license or commitment (a) any existing
material default by the Company or any event which, after
notice or lapse of time, or both, would constitute a material
default by the Company or result in a right to accelerate by
any other person or a loss of any material rights of the
Company and (b) to the best of each respective Shareholders'
knowledge, any default by any other person, or any event
which, after notice or lapse of time, or both, would
constitute a default by any such person or result in a right
to accelerate by the Company or a loss of any material rights
of any such person. The Company is not a party to or bound by
any contract, agreement, lease, license or commitment which,
upon performance, is reasonably expected to result in any loss
or liability to the Company. True and complete copies of all
contracts, agreements, leases, licenses, commitments and other
documents listed in the Disclosure Letter (together with any
and all amendments thereto) have been delivered to IBS or its
representatives.
P. Intellectual Property. Set forth in the Disclosure Letter is a
list of all material patents, patent applications, patent
licenses, trademarks, trademark registrations, and
16
applications therefor, service marks, service names, trade
names, domain names, copyrights and copyright registrations,
and applications therefor, and software licenses of the
Company and all computer software used by the Company (the
"Intellectual Property"). Except as set forth in the
Disclosure Letter, to the Shareholders' best knowledge, the
Company owns or possesses the royalty-free license or other
right to use all Intellectual Property which are listed in the
Disclosure Letter or which are necessary to conduct its
business as presently operated without conflict with or
infringement upon any valid rights of others. To each of the
Shareholder's respective best knowledge, no person, firm,
corporation or other entity is entitled to restrain the
Company from using any such copyright, trademark, service
xxxx, service name, trade name, domain names, computer
software or patent. The Company has not received any notice
claiming that it is infringing upon or otherwise acting
adversely to any copyrights, trademarks, trademark rights,
service marks, service names, trade names, domain name,
patents, patent rights, licenses or trade secrets owned by any
person, firm, corporation or other entity. Except as set forth
in the Disclosure Letter, there are no outstanding options,
licenses or agreements of any kind with respect to the
Intellectual Property. None of the Shareholders or the
Company's managers or employees or any affiliate thereof has
any interest in any Intellectual Property.
Q. Consents. Except as set forth in the Disclosure Letter, no
material consent, approval, exemption or authorization is
required to be obtained from, no notice is required to be
given to and no filing is required to be made with any third
party (including, without limitation, governmental and
quasi-governmental agencies, authorities and instrumentalities
of competent jurisdiction) by the Company or Shareholders, (i)
in order for this Agreement to constitute legal, valid and
binding obligations of Shareholders or to authorize or permit
the consummation by Shareholders of the transactions
contemplated hereby and thereby or (ii) under or pursuant to
any material governmental or quasi-governmental permits,
licenses, consents authorizations or approvals held by or
issued to the Company (including, without limitation,
environmental, health, safety and operating permits and
licenses) by reason of this Agreement or the consummation of
the transactions contemplated hereby, other than those which
would not have a material adverse effect on the Company.
R. Receivables. Except as set forth in the Disclosure Letter, all
receivables of the Company (including loans receivable and
advances) other than accounts receivable which are reflected
in the Balance Sheet, and all such receivables which have
17
arisen since the Balance Sheet Date, constituted and will
constitute only valid claims against third parties not
affiliated with the Company, arising only from bona fide
transactions in the ordinary course of business and, to the
best knowledge of Shareholders, will (or have been or are
expected to be) fully collected or collectible in accordance
with the usual terms customarily utilized by the Company
without resort to litigation and without defense, offset or
counterclaim, in the aggregate face amounts thereof except to
the extent of the normal allowance for doubtful accounts with
respect to accounts receivable computed in a manner consistent
with prior practice as reflected on the Balance Sheet.
Shareholders have delivered to IBS an aging schedule for the
accounts receivable of the Company at the Balance Sheet Date.
S. Litigation. Except as set forth in the Disclosure Letter,
there is no claim, legal action, arbitration, governmental or
other legal or administrative proceeding pending or to the
best knowledge of Shareholders, investigation pending, nor any
order, decree or judgment in progress, pending or in effect,
or to the best knowledge of each respective Shareholder
threatened, against or relating to the Company, its
properties, assets, business or Capital Stock or the
transactions contemplated by this Agreement, and each
respective Shareholder does not know of any basis of the same.
Except as disclosed in the Disclosure Letter, there is no
continuing order, injunction or decree of any court,
arbitrator or governmental authority to which the Company is a
party or by which the Company or its assets, properties,
business or Capital Stock are bound.
T. Employee Plans. The Disclosure Letter sets forth a list of all
Employee Plans (as defined below). "Employee Plans" means all
pension, retirement, disability, medical, dental or other
health insurance plans, life insurance or other death benefit
plans, profit sharing, deferred compensation, stock options,
bonus or other incentive plans, severance plans, or other
employee benefit plans or arrangements, whether or not funded,
covering any of the Company's current or former officers,
employees, directors or consultants or to which the Company is
a party or bound or otherwise may have any liability to any
person (including any such plan formerly maintained or in
connection with which the Company may have any liability to
any person after the Closing, and any such plan which is a
18
multi-employer plan. No Employee Plan fails to comply in full
with applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") and regulations issued under
ERISA, in such a manner as to constitute, in the aggregate, a
material adverse event. Complete and correct copies of all
determination letters issued by the Internal Revenue Service
relating to any qualified plans under Section 401(a) of the
Internal Revenue Code have previously been delivered to IBS,
to the extent the Company was required to obtain such letters
under applicable law. No facts or circumstance, including,
without limitation, any "reportable events" as defined in
ERISA and the regulations promulgated under ERISA, exist in
connection with such plans which constitute, in the aggregate,
a material adverse event with respect to an Employee Plan, or
which might constitute grounds for the termination of any such
plan by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of
a trustee to administer any such plan, nor does any such plan
have any funding deficiency.
The Company has complied with and performed in all
material respects all contractual obligations required by it
to be performed with respect to any Employee Plan or any
related trust agreement or insurance contract. All
contributions and other payments required to be made by the
Company to any Employee Plan prior to the date hereof have
been made or accrued. Except as disclosed in the Disclosure
Letter and except as disclosed at the direction of, or
pursuant to discussions with, IBS, the Company has not
communicated generally to its employees regarding any material
increases of benefit levels (or creation of material new
benefits) with respect to any Employee Plan beyond those
reflected in the current Employee Plans.
Except as set forth in the Disclosure Letter, the
Company has not participated in or incurred an obligation to
contribute to any Multiemployer Plan (as defined in Section
3(37) of ERISA) or incurred or been notified of any withdrawal
liability in respect of any such plan.
U. Insurance. Set forth in the Disclosure Letter is a description
of all fire, theft, casualty, liability and other insurance
policies insuring the Company, all performance bonds, customs
bonds and the like maintained by, or for the benefit of, the
Company, and all life insurance policies maintained for any of
its employees, specifying with respect to each such policy or
bond the name of the insurer or issuer, the risk insured
against or covered thereby, the limits of coverage, the
deductible amount (if any), the premium rate or cost and the
date through which coverage will continue by virtue of
premiums already paid. To the best of Shareholders' knowledge,
the Company maintains adequate insurance coverage, in an
amount obtained by comparable entities, for normal risks
incident to the Company's assets, properties and business
operations. Such insurance will continue to be in force as of
the Closing Date.
19
V. Disclosure. To the best knowledge of Shareholders, no
representation or warranty by Shareholders contained in this
Agreement, and no information contained in the Disclosure
Letter or any other instrument furnished or to be furnished to
IBS pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain any
untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the
statements contained therein not misleading.
W. Bank Accounts. The Disclosure Letter sets forth the name of
each bank or other financial institution in which the Company
has an account or safe deposit box or vault arrangement and
the names of all persons authorized to draw thereon or to have
access thereto; and the names of all persons, if any, holding
tax or other powers of attorney from the Company.
X. Employee Matters. The Disclosure Letter sets forth (i) the
name of each employee of the Company; the amount paid to him
for services rendered during the calendar years 1997 and 1998;
the current annual rate of his or her compensation; a list of
all written contracts of employment of the Company and all
consulting agreements with the Company and the terms thereof;
(ii) all collective bargaining or other labor agreements, if
any, to which the Company is a party; all affirmative action
plans or other such plans in effect since January 1 1997;
(iii) all union organizing efforts conducted or being
conducted or threatened with respect to employees of the
Company; all labor-related work stoppages experienced by the
Company since January 1, 1997; and (iv) all reports filed
since January 1, 1997 with governmental agencies relating to
equal employment opportunities and employment of protected
minorities (including women and persons over age 40); all
decisions rendered by governmental agencies (including Courts
and the Equal Employment Opportunity Commission) with respect
to claims or complaints filed alleging unlawful,
discriminating employment practices; and all such claims or
complaints now pending; and, (v) the officers of the Company
now in office. Other than as set forth in the Disclosure
Letter, the Company has no employment agreements with any of
its employees other than At-Will employment agreements that
give the Company the right to terminate at any time any such
employee without notice or cause, subject to statutory
exceptions, such as termination as a result of discrimination
and the like.
Y. Finders' and Brokers' Fees. Neither Shareholders nor the
Company, nor anyone on behalf of any such persons, has
retained any broker, finder or agent or agreed to pay any
brokerage fee, finder's fee or commission with respect to the
transactions contemplated by this Agreement.
20
Z. Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama; Each
Shareholder has the requisite corporate power and authority to
own, lease otherwise hold the Capital Stock held by him;
Company has the requisite corporate power to execute and
deliver this Agreement and perform the transactions
contemplated hereby to be performed by it; The execution and
delivery by Company and Shareholders of this Agreement and the
performance by Company and Shareholders of the transactions
contemplated hereby to be performed by it have been duly
authorized by all necessary corporate and stockholder actions
on the part of Company and/or Shareholders. This Agreement has
been duly executed and delivered by a duly authorized officer
of Company and, assuming the due execution and delivery of
this Agreement by IBS, constitutes a valid and binding
obligation of Company enforceable against the Company in
accordance with its terms except to the extent that
enforceability may be limited by bankruptcy laws and other
laws of general application relating to creditor's rights,
general principles of equity or principles of public policy.
AA. The execution and delivery of this Agreement by the Company
does not, and the performance by the Company of the
transactions contemplated hereby to performed by it will not
(i) conflict with the articles of incorporation or by laws of
the Company, (ii) conflict with, or result in any violation
of, or constitute a material default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
to loss of a benefit under, any material contract, permit,
order, judgment or decree to which Company is a party or to
which it is bound, which would have a material adverse effect
on the Company, (iii) constitute a violation of material any
law or regulation applicable to Company, which would have a
material adverse effect on the Company or (iv) result in the
creation of any lien, charge or encumbrance upon any of the
assets of the Company.
BB. Investment Intent.
(i) Each certificate representing the Shares shall be
imprinted with a legend in substantially the
following form:
21
(i) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN SOLD
IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE
SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION COVERING THESE SECURITIES UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED THEREUNDER. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE CONDITIONS SPECIFIED IN THE EXCHANGE
AGREEMENT, DATED AS OF MARCH 31, 1999 AND AS AMENDED
AND MODIFIED FROM TIME TO TIME BETWEEN THE ISSUER
(THE "COMPANY") AND CERTAIN INVESTORS, AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF
SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF
SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST WITHOUT
CHARGE.
Notwithstanding the foregoing, IBS agrees to cause the
foregoing legend to be removed from the Stock Certificates
representing the IBS Stock no later than 1 year after the
Closing Date, such removal date currently being projected as
April 1, 2000.
(ii) Each of Shareholders, respectively, is acquiring the
Shares for his, her or its own account, for
investment purposes and not with a view to, or for
sale in connection with, any distribution of such
Shares or any part thereof.
(iii) Each of Shareholders, respectively, is (a) an
"accredited investor" as that term is defined in Rule
401(a) promulgated under the Securities Act of 1933,
as amended, or (b) is an investor experienced in the
valuation of businesses similar to IBS, and (c) is
able to fend for him, her or its self in the
transactions contemplated by this Agreement, and (d)
has such knowledge and experience in financial,
business and investment matters as to be capable of
evaluating the merits and risks of this investment,
and (e) has the ability to bear the economic risks of
this investment, (f) has had access to and has
received such information regarding IBS as is
specified in subparagraph (b)(2) of Rule 402
promulgated under the Securities Act of 1933, as
amended, and (g) without in any way limiting IBS's
right or ability to rely on the representations and
warranties made by Shareholders in or pursuant to
this Agreement, have been afforded prior to the
Closing the opportunity to ask questions of, and to
receive answers from, IBS and to obtain any
additional information, to the extent IBS has such
information or could have acquired it without
unreasonable expense, all as necessary for each of
Shareholders, respectively, to make an informed
investment decision with respect to the exchange of
the IBS Stock.
22
(iv) Each of Shareholders, respectively, understands and
acknowledges that (a) the Shares to be sold and
issued hereunder are unregistered and may be required
to be held indefinitely unless subsequently
registered under the Securities Act of 1933, as
amended, or an exemption from such registration is
available; (b) IBS is under no obligation to file a
registration statement with the Securities and
Exchange Commission with respect to the Shares; and
(c) Rule 144 promulgated under the Securities Act of
1933, as amended ("Rule 144"), which provides for
certain limited sales of unregistered securities, is
not presently available with respect to the Shares,
but Shareholders understand that limited sales of
unregistered securities pursuant to Rule 144 will
become available with respect to the Shares beginning
April 1, 2000.
(v) Each of Shareholders, respectively, acknowledges that
the representations and warranties of IBS in this
Agreement or in any documents delivered in connection
herewith or the negotiations hereunder or the filings
made by IBS with the Securities and Exchange
Commission, when made, provided for herein represent
the sole and exclusive representations and warranties
of IBS to the Shareholders in connection with the
transactions contemplated hereby, and each of the
respective Shareholders understands, acknowledges and
agrees that all other representations and warranties
of any kind or nature expressed or implied
(including, but not limited to, any relating to the
future or historical financial condition, results of
operations, assets or liabilities of IBS) are
specifically disclaimed by IBS.
5. Covenants of Shareholders and Company Prior to Closing. From the date
of this Agreement until the Closing:
A. General. Each Shareholder and the Company, respectively,
will use their reasonable best efforts to take all actions and
do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing
conditions set forth in Sections 8 and 10 of this Agreement).
23
B. Conduct of Business Pending Closing. Except as otherwise
consented to in writing by IBS, Shareholders shall cause the
Company to diligently conduct its business only in the
ordinary course and consistent with prior practice and have
maintained, kept and preserved its assets and properties in
good condition and repair, ordinary wear and tear excepted,
and maintained insurance thereon in accordance with present
practice. Shareholders shall use their reasonable best efforts
to preserve the business and organization of the Company
intact to keep available to IBS the services of the present
managers and employees of the Company, and to preserve for the
benefit of IBS the goodwill of the suppliers and customers of
the Company and others having business relations with the
Company. The Shareholders shall give IBS prompt written notice
of any material adverse change in or addition to any of the
information contained in the representations and warranties
made herein by the Shareholders or in the Disclosure Letter to
this Agreement which has occurred prior to the Closing Date.
Without limiting the generality of the foregoing:
(i) Without IBS' prior written approval, Shareholders
shall cause the Company to not amend, modify,
supplement or otherwise alter its articles of
incorporation or bylaws, as currently amended and in
effect, or merge or consolidate or obligate itself to
do so with or into any other entity;
(ii) Without IBS' prior written approval, Shareholders
shall cause the Company to not enter into any
contract, agreement, commitment or other
understanding or arrangement except for those in the
ordinary course of business.
(iii) Shareholders shall cause the Company to comply with
all existing laws, rules, regulations, ordinances,
orders, judgments and decrees now or hereafter
applicable to its business, properties or operations
as presently conducted;
(iv) Shareholders shall cause the Company to accurately
prepare and duly and timely file all required
federal, state, local and foreign Returns of the
Company and pay all federal, state, local and foreign
taxes (including, without limitation, taxes on
properties, income, franchises, licenses and
payrolls) shown on such Returns as are due and
required to be paid or otherwise due and payable
without the preparation or filing of any Return;
24
(v) Without IBS' prior written approval, Shareholders
shall cause the Company to not declare or make any
payment of distributions to its members or upon or in
respect of any Capital Stock, or purchase, retire or
redeem, or obligate itself to purchase, retire or
redeem, any Capital Stock or securities other than a
distribution to the Shareholders in an amount equal
to the tax liability of such Shareholders with regard
to the operations of the Company since January 1,
1999 and other than any other distribution permitted
by this Agreement; and,
(vi) Neither the Shareholders nor the Company will,
without IBS' prior written approval, perform, take
any action or incur or permit to exist any of the
acts, transactions, events or occurrences of the type
described in clauses (i) through (xiv) of Section 4.J
of this Agreement.
C. Access, Information and Documents. Prior to the Closing Date,
the Shareholders shall have given to IBS and to IBS's
accountants, counsel and other representatives, full access
during normal business hours to all property, contracts,
commitments, books and records of the Company (including
minute books and membership lists) and have furnished to IBS
all such documents and copies of documents (certified by a
manager of the Company if requested) and information with
respect to the affairs of the Company that IBS have from time
to time reasonably requested, and have notified IBS as to any
unusual problems or developments, if any, with respect to the
business of the Company prior to the Closing.
D. No Transfers. Shareholders will not sell, assign, deliver or
otherwise transfer any of the Capital Stock of the Company
owned by them to any one or otherwise encumber or affect such
Capital Stock, in any manner, except as contemplated by this
Agreement.
E. Exclusivity. For a period of sixty (60) days from the date of this
Agreement, Shareholders will not (i) solicit, initiate or encourage the
submission of any proposal or offer from any person relating to the
acquisition of any equity interest, or any substantial portion of the
assets, of the Company (including any acquisition structured as a
merger, consolidation or equity exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other
manner, any effort or attempt by any person to do or seek any of the
foregoing. Shareholders will notify IBS immediately if any person makes
any proposal, offer, inquiry or contact with respect to any of the
foregoing.
25
F. Transactions in IBS Stock. Pending the Closing, Shareholders shall not,
directly or indirectly, effectuate or cause to be effectuated,
purchases or sales of IBS's IBS Stock.
6. Representations and Warranties of IBS. IBS represents and warrants to each
of Shareholders (which representations and warranties shall survive the
Closing, as follows:
A. Organization and Standing. IBS is a corporation duly organized and
validly existing and in good standing under the law of the State of
Delaware and each and every other state where the failure to qualify
would have a material adverse effect on IBS. When issued, the IBS Stock
will be validly issued, non-assessable and fully paid.
B. Legal Capacity; No Restrictions. IBS has full corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. All action required to authorize IBS to enter
into this Agreement and to carry out the transactions contemplated
hereby has been properly taken; and this Agreement constitutes the
legal, valid and binding obligation of IBS, enforceable in accordance
with its terms. The execution, delivery and performance of this
Agreement by IBS in accordance with its terms will not, with or without
the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or
result in the creation of any Encumbrance pursuant to, or require the
consent of any third party or governmental authority pursuant to (a)
any provision of IBS's respective articles of incorporation or by-laws,
as currently amended and in effect or (b) any franchise, mortgage,
indenture or deed of trust or any material lease, license or other
agreement or any law, regulation, order, judgment or decree to which
IBS is a party or by which it (or any of its assets, properties,
operations or business) may be bound, subject to or affected. Since
January 1, 1999, there has been no material adverse change in the
business, condition (financial or otherwise), properties, assets,
liabilities, operations or prospects of IBS.
C. Compliance with Laws and Other Instruments. IBS has complied with all
existing material federal, state and local laws, rules, regulations,
ordinances, orders, judgments and decrees now or hereafter applicable
to its business, properties or operations as presently conducted, and
neither the ownership nor use of IBS's properties nor the conduct of
their respective businesses conflicts with the rights of any other
person, firm or corporation or violates, or with or without the giving
of notice or the passage of time, or both, will violate, conflict with
or result in a default, right to accelerate or loss of rights under,
any term or provision of their respective (i) certificates of
incorporation or bylaws, as currently amended and in effect, or (ii)
26
any mortgage, indenture, deed of trust or material Encumbrances, lease,
license or agreement or any law, ordinance, rule, regulation, order,
judgment or decree to which IBS is a party or by which they or any of
their respective properties, assets or operations may be bound or
affected or which might material adversely affect any such properties,
assets or operations. Without limiting the generality of the foregoing,
to the best knowledge and belief of IBS, neither of IBS nor any of
their respective officers, directors, employees or agents has, directly
or indirectly, made, promised to make, or authorized the making of, any
offer, payment or gift of money or anything of value to any
governmental official, political party or employee, agent or fiduciary
of a customer, to obtain a contract for or to influence a decision in
favor of IBS where such offer, payment or gift was or would be, if
made, in violation of any applicable law, nor has it maintained cash or
anything of value, in an account or otherwise, not properly or
accurately accounted for on the respective books and records of IBS for
this purpose.
D. Disclosure. None of the respective representations or warranties by IBS
contained in this Agreement, and no information contained in any other
instrument furnished or to be furnished by IBS pursuant to this
Agreement, including the information under Rule 402 promulgated under
the Securities Act of 1933, or in connection with the transaction
contemplated hereby contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary
in order to make the statements contained therein not misleading.
E. Investment Intent. IBS is acquiring the Capital Stock for its own
respective accounts for investment, and not with a view to the resale
or distribution thereof. IBS intends, immediately after the exchange
hereunder, to continue or cause the Company to continue the historic
business of the Company.
F. Finders' and Brokers' Fees. Neither IBS nor anyone on behalf of IBS,
has retained any broker, finder or agent or agreed to pay any brokerage
fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement.
7. Nature and Survival of Representations and Warranties of Shareholders. All
statements contained in this Agreement and the Disclosure Letter delivered
by or on behalf of Shareholders and/or the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed
representations, warranties, covenants and agreements made by Shareholders.
Each statement, representation, warranty, covenant and agreement made or
deemed made by Shareholders shall survive the Closing Date until
twenty-four (24) months from the Closing Date. The statements,
representations, warranties, covenants and agreements made or deemed made
by Shareholders in this Agreement shall not be affected or deemed waived by
27
reason of the fact that IBS or their representatives should have known that
any such representation, warranty, covenant or agreement is or might be
inaccurate in any respect unless Shareholders can demonstrate that IBS or
their representatives had actual (and not merely constructive) knowledge
that any such representations, warranty, covenant or agreement is
inaccurate in such respect. Any furnishing of information to IBS by
Shareholders pursuant to, or otherwise in connection with, this Agreement,
including, without limitation, any information contained in any document,
contract, book or record of Shareholders or the Company to which IBS shall
have access or any information obtained by, or made available to, IBS as a
result of any investigation made by or on behalf of IBS prior to or after
the date of this Agreement, shall not affect IBS's right to rely on any
statement, representation, warranty, covenant or agreement made or deemed
made by Shareholders in this Agreement and shall not be deemed a waiver
thereof unless Shareholders can demonstrate that IBS or its representatives
had actual (and not merely constructive) knowledge that any such statement,
representation, warranty, covenant or agreement is inaccurate in such
respect.
8. Conditions Precedent to Obligations of IBS. The exchange by IBS and the
Shareholders of the Capital Stock and the IBS Stock is subject to the
conditions set forth in this Section 8 for the exclusive benefit of IBS to
be fulfilled on or prior to the Closing Date. IBS may, however, waive the
fulfillment of any of these conditions, either before or after the Closing
Date, but any waiver, to be binding upon IBS, must be by a writing duly
executed by it or shall be reflected by IBS's closing of the transactions
contemplated hereby. Shareholders shall use commercially reasonable efforts
to cause each condition to be fulfilled.
A. Representations. All representations and warranties
of Shareholders and the Company contained in this
Agreement, the Disclosure Letter, and any document,
certificate or other instrument delivered by or on
behalf of Shareholders and/or the Company pursuant to
this Agreement or in connection with the transactions
contemplated hereby shall be true and correct when
made in all material respects and such
representations and warranties shall be deemed to be,
as of the Closing Date, true and correct in all
material respects.
B. Performance of Agreements. All covenants, agreements
and obligations required by the terms of this
Agreement to be performed by Shareholders and/or the
Company at or prior to the Closing Date shall have
been duly and properly performed or fulfilled in all
material respects.
28
C. No Adverse Change. On the Closing Date, there shall
have been no material adverse change in the assets,
liabilities, financial condition or business
(financial or otherwise) of the Company from that
shown or reflected in the Interim Financial
Statements. Between the date of this Agreement and
the Closing Date, there shall not have occurred an
event which, in the reasonable opinion of IBS,
materially and adversely affects or may materially or
adversely affect the operations, business or
prospects of the Company.
D. Documents. All documents required to be delivered to
IBS at or prior to the Closing Date shall have been
duly delivered.
E. No Litigation. On the Closing Date, except as set
forth in the Disclosure Letter, no action or
proceeding shall be pending or threatened by any
person, firm, corporation, or governmental authority
which questions, or seeks to enjoin or prohibit (a)
the exchange of the Capital Stock hereunder and the
other transactions contemplated by this Agreement or
(b) the right of the Company to conduct its
operations and carry on its business in the normal
course and in accordance with past practice.
F. No Legislation. No legislation (whether by statute,
regulation or otherwise) shall have been enacted or
introduced subsequent to the date of this Agreement
which, in the reasonable opinion of IBS, materially
and adversely affects or may materially and adversely
affect the operations, business or prospects of the
Company.
G. Employment Agreements. Xxxxxxx, Deep, Xxxxxxx, Xxxx
and Lenox shall have entered into written employment
agreements acceptable to IBS.
H. Car Lease Obligations. The Company shall have
relieved itself of all of its obligations under any
and all car leases.
9. Conditions Precedent to Obligations of Shareholders. The sale of their
Capital Stock by Shareholders is subject to the conditions set forth in
this Article for the exclusive benefit of Shareholders to be fulfilled on
or prior to the Closing Date. Shareholders may, however, waive the
29
fulfillment of any of these conditions, either before or after the Closing
Date, but any waiver, to be binding upon Shareholders, must be by a writing
executed by, or on behalf of, them. IBS shall use commercially reasonable
efforts to cause each condition to be fulfilled.
A. Representations. All of the respective
representations and warranties of IBS contained in
this Agreement shall be true and correct in all
material respects when made and such representations
and warranties shall be deemed to be, as of the
Closing Date, true and correct in all material
respects.
B. Performance of Agreements. All covenants, agreements
and obligations required by the terms of this
Agreement to be performed by IBS at or prior to the
Closing Date shall have been duly and properly
performed or fulfilled in all material respects.
C. Documents. All documents required to be delivered to
Shareholders at or prior to the Closing shall have
been duly delivered or to be executed by IBS in
connection with this Agreement shall have been
executed.
D. No Litigation. On the Closing Date, except as set
forth in the Disclosure Letter, no action or
proceeding shall be pending or threatened by any
person, firm, corporation, or governmental authority
which questions, or seeks to enjoin or prohibit (a)
the exchange of the Capital Stock hereunder and the
other transactions contemplated by this Agreement or
(b) the right of the Company to conduct its
operations and carry on its business in the normal
course and in accordance with past practice.
E. No Legislation. No legislation (whether by statute,
regulation or otherwise) shall have been enacted or
introduced subsequent to the date of this Agreement
which, in the reasonable opinion of Shareholders,
materially and adversely affects or may materially
and adversely affect the operations, business or
prospects of the Company or IBS.
F. Employment Agreements. Xxxxxxx, Deep, Xxxxxxx and,
Xxxx and Lenox shall have entered into written
employment agreements acceptable to IBS.
10. Delivery by Shareholders at the Closing. On the Closing Date, and
subject to the terms and conditions set forth herein, Shareholders
shall deliver to IBS:
30
A. Certificates evidencing all of the issued and outstanding
Capital Stock, together with such instruments as IBS may
reasonably request to effect the sale, transfer and assignment
of the Capital Stock from Shareholders to IBS.
B. Resolutions of Company's Board of Directors and shareholders
approving the transactions contemplated hereby.
C. Executed employment agreements, in form satisfactory to IBS,
for Xxxxxxx, Deep, Xxxxxxx, Xxxx and Lenox, respectively.
D. The written resignations of Xxxxxxx, Deep, Xxxxxxx and Xxxx as
officers and directors of the Company and any and all
other officers and directors of the Company.
E. Written, executed terminations of any existing employment
agreements with the Company.
F. Shareholders shall have procured those third-party consents
required in connection with the transactions contemplated
herein.
G. Such additional items as IBS may reasonably request.
11. Delivery by IBS on the Closing Date. On the Closing Date, and subject
to the terms and conditions set forth herein, IBS shall deliver to
Shareholders:
A. The Closing Shares.
B. The fully executed Reserve Letter (Exhibit B) and evidence of
the delivery/reservation of the Stock Certificate or
Certificates, evidencing the First Reserve Shares and the
Second Reserve Shares, to IBS's Reserve Agent as provided in
this Agreement
12. Expenses. IBS shall bear and pay the legal, accounting and other
expenses of IBS associated with the consummation of the transactions
contemplated hereby. The Company shall bear and pay the legal,
accounting and other expenses of the Company associated with the
consummation of the transactions contemplated hereby. Each Shareholder
shall bear and pay his legal, accounting and other expenses associated
with the consummation of the transactions contemplated hereby;
provided, however, that any outside financial, accounting, legal and/or
other expenses incurred by a Shareholder with respect to the
consummation of the transactions contemplated hereby, shall be the sole
responsibility and obligation of such Shareholder; provided, however,
that the Shareholders shall be entitled to cause the Company to make a
distribution to Shareholders in the amount of such expenses prior to
closing.
31
14. IBS Indemnification. IBS shall indemnify and hold harmless the
Shareholders and their respective heirs, executors and legal
representatives ("Shareholder Indemnitees") from and against any
losses, damages, expenses or liabilities, including, without
limitation, reasonable attorneys', accountants and other professional
fees, which may be sustained, suffered or incurred by any of the
Shareholder Indemnitees arising from or by reason of or in connection
with any breach of the representations, warranties or covenants made by
IBS herein. This indemnity shall survive the Closing Date; provided,
however, that any claim for indemnity hereunder must be presented to
IBS within twenty (24) months of the Closing Date. Without limiting the
generality of the foregoing, IBS agrees to assume any indebtedness for
borrowed money of the Company listed on the Disclosure Letter and shall
pay such indebtedness within thirty (30) days following the Closing
Date and shall obtain a release of each of the Shareholders as a
personal guarantor of any such indebtedness, and IBS shall indemnify
and hold harmless each of the Shareholder Indemnitees from and against
any losses, damages, expenses or liabilities, including, without
limitation, reasonable attorneys', accountants and other professional
fees, which may be sustained, suffered or incurred by any of the
Shareholder Indemnitees arising from or by reason of or in connection
with each of IBS's failure to pay off such indebtedness and IBS's
failure to obtain a release of Shareholders' personal guaranties. IBS
agrees that the release of the Shareholders' personal guaranties is
merely incidental to the Reorganization and the assumption of the
liabilities by IBS is done to continue the financial strength of the
Company and its historic business.
15. Publicity. No party shall issue any press release or make any public
announcement relating tot he subject matter of this Agreement or
otherwise publicize the execution and delivery of this Agreement, the
provisions hereof or the transactions contemplated hereby without the
prior written approval of the form and content of such press release or
publicity by IBS or Shareholders, as applicable; provided, however,
that any party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement
concerning its publicly traded securities (in which case the disclosing
party will use its best efforts to advise the other party prior to
making such disclosure).
16. Tax Matters. (a) The parties agree to treat the transactions
contemplated by this Agreement as a tax free reorganization under
Section 368(a)(1)(B) of the Code. All of the parties hereto represent,
32
warrant and covenant that they shall use their best efforts not to take
any action, whether before, during or after the Closing, that would be
inconsistent with treating this transaction as a tax free
reorganization under Section 368(a)(1)(B) of the Code. The
representations, warranties and covenants set forth in this Section 16
shall survive the Closing of the transaction.
(b) For tax purposes, Shareholders' tax statements (K-1) shall
reflect a closing of the books of the Company as of the date of closing
prepared consistently with the Compay's prior tax filings and in
accordance with Section 706(c) of the Internal Revenue Code of 1986, as
amended (the "Code") and all similar state and local tax provisions,
such that only income, deductions, credits, losses and other tax
attributes of the Company up to and including the Closing Date shall be
taken into the income of the Shareholders and any income, deductions,
credits, losses and other tax attributes after the closing date shall
be attributable to the Company or IBS. No annual proration of items
shall occur or be reported, but rather a true closing of the books
shall occur. The parties hereto agree that, in the event that the
Company has net income, as computed by the Code, associated with the
operations of the Company prior to the Closing Date, the Shareholders,
as the only shareholders of the Company immediately prior to the
Closing Date, shall be entitled to a distribution from the Company
equal to their tax liability associated with such income. The
Shareholders, at the expense and with the reasonable approval of the
Company, shall be responsible for preparing (or at Shareholders's
option, causing the Company's independent certified accounting firm to
prepare) all returns and reports for the Company's income taxes for the
taxable periods through the Closing Date. IBS shall be responsible for
filing or causing the Company to file all returns and reports for Taxes
for the taxable periods of the Company after the Closing Date.
33
17. Notices.
A. Any and all notices, requests, demands, consents, approvals or
other communications required or permitted to be given under
any provision of this Agreement shall be in writing and shall
be deemed given upon personal delivery or three (3) days
following the mailing thereof by first class certified mail,
return receipt requested, postage prepaid; or by telecopier or
other electronic means, as follows:
If to IBS:
IBS Interactive, Inc.
0 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxxx Xxxxxxxx, Xx., President
with a copy to:
Xxxxx X. Xxxxxxx, Esq.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
If to Shareholders:
Xx. Xxx X. Xxxxxxx
Xx. Xxxxxxx Deep
Xx. Xxxxxxx Xxxxxxx
Xx. Xxxxxxx Xxxx
Xx. Xxxxx Xxxxx
c/o Spectrum Information Systems, Inc.
000 Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
with a copy to:
S. Xxxxxxx Xxxx, Esq.
Xxxxxxx Xxxxx Rose & White LLP
000 Xxxxxxx Xxxxxx Xxxx, Xxx. 000
Xxxxxxxxxx, Xxxxxxx 00000
B. Any party hereto may change its address for the purpose of
this Agreement by notice to the other parties given as
aforesaid.
18. Miscellaneous.
A. Entire Agreement; Amendment. This Agreement together with the
Disclosure Letter constitute the entire agreement of the
parties with respect to the subject matter hereof and the
transactions contemplated hereby and supercedes any prior oral
34
or written understanding or agreement of the Shareholders and
IBS with respect thereto. This Agreement may not be modified,
amended or terminated except by a written agreement
specifically referring to this Agreement signed by all of the
parties hereto.
B. Disclosure Letter Part of Agreement. The Disclosure Letters
referred to herein and delivered to IBS pursuant hereto,
including any amendments thereto or changes therein delivered
to IBS on or prior to the Closing Date, shall be deemed part
of this Agreement as fully and effectively as if set forth at
length herein. The terms used in said Disclosure Letter shall
have the same meanings as such terms have in this Agreement
unless a contrary intention is clearly manifested therein.
C. Severability. In the event that any provision of this
Agreement would be held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason, unless such
provision is narrowed by judicial construction, this Agreement
shall, as to such jurisdiction, be construed as if such
invalid, prohibited or unenforceable provision had been more
narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any
provision of this Agreement would be held to be invalid,
prohibited or unenforceable in any jurisdiction for any
reason, such provision, as to such jurisdiction for any
reason, shall be ineffective to the extent of such invalidity,
prohibition or unenforceability, without invalidating the
remaining portion of such provision or the other provisions of
this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction.
35
D. No Waiver. No waiver of any breach or default hereunder shall
be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or
similar nature.
E. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each party hereto, and its successors and
assigns. Except as hereafter provided, this Agreement shall
not be assigned by either IBS or Shareholders and any
attempted assignment shall be void.
F. Persons Having Rights Under This Agreement. Nothing in this
Agreement expressed and nothing that may be implied from any
of the provisions hereof is intended, or shall be construed,
to confer upon, or give to, any person or corporation other
than the parties hereto, any right, remedy, or claim under or
by reason of this Agreement or of any covenant, condition,
stipulation, promise or agreement contemplated hereby. All
covenants, conditions, stipulations, promises and agreements
contained in this Agreement shall be for the sole and
exclusive benefit of the parties hereto and their successors
and assigns.
G. Headings. The article and section headings contained herein
are for the purpose of convenience only and are not intended
to define or limit the contents of said articles or sections.
H. Further Assurances. Shareholders and IBS shall cooperate and
take such actions and execute and deliver such other
documents, at or prior to the Closing or subsequent thereto as
may be reasonably requested by any other party hereto in order
to carry out this Agreement and the transactions contemplated
thereby.
36
I. Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures
of more than one party but all of which taken together shall
constitute one and the same Agreement.
J. Rights and Remedies. All rights, powers and remedies afforded
to a party under this Agreement, by law or otherwise, shall be
cumulative (and not alternative) and shall not preclude
assertion or seeking by a party of any other rights or
remedies.
K. Certain Definitions. As used herein, the word "person" shall
include an individual and entity of any kind.
L. Attorney-in-Fact. Each Shareholder hereby appoints Xxxxxxx
Deep as such Shareholder's attorney-in-fact and
representative, to do any and all things and to execute any
and all documents, in such Shareholder's name, place and
stead, in any way which such Shareholder could do if
personally present, in connection with this Agreement and the
transactions contemplated hereby, including, but not limited
to, amending, canceling, extending or waiving any term of this
Agreement, to bring claims for and defend claims against
liabilities and Additional Liabilities pursuant to the terms
of this Agreement and to enter into settlement negotiations
and to settle claims thereunder, and to accept notices
pursuant to Section 16 of this Agreement. Each of the other
parties hereto shall be entitled to rely, as being binding
upon each Shareholder, upon any document reasonably believed
by it to be genuine and correct and to have been signed by the
attorney-in-fact, and no other party shall be liable to any
Shareholder for any action taken or omitted to be taken by it
on such reliance.
37
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
Shareholder Shareholder
/s/ Xxx X. Xxxxxxx /s/ Xxxxxxx Deep
--------------------- --------------------
Xxx X. Xxxxxxx Xxxxxxx Deep
Shareholder Shareholder
/s/ Xxxxxxx Xxxxxxx /s/ Xxxxxxx Xxxx
--------------------- --------------------
Xxxxxxx Xxxxxxx Xxxxxxx Xxxx
Shareholder Shareholder
/s/ Xxxxx Xxxxx
--------------------- --------------------
Xxxxx Xxxxx
SPECTRUM, INC.
By: /s/ Xxx X. Xxxxxxx
--------------------
Xxx X. Xxxxxxx
President
IBS INTERACTIVE, INC.
By: /s/ Xxxxxxx Xxxxxxx
------------------------
Xxxxxxx Xxxxxxx
Chief Financial Officer
38
